LendingTree Analysis Indicates Greater Savings with Adjustable-Rate Mortgages, yet Fixed-Rate Loans are the Growing Majority

CHARLOTTE, N.C., May 23, 2012 /PRNewswire/ --  LendingTree, LLC, the nation's leading online source for competitive loan offers, today announced that 30-year fixed-rate loans have become increasingly popular, but recent data and current market conditions are proving that an adjustable-rate loan to be a more valuable alternative, offering substantially higher savings.  With Adjustable Rate Mortgages (ARM) representing only about 7% of new loan originations in the market, many consumers are seemingly unaware that these adjustable rate loans are worth a second look.

As refinance volume has increased year over year, so has the proportion of 30-year fixed rate loans amongst borrowers. From January to May 2012, the proportion of borrowers refinancing to a 30-year fixed-rate loan has increased about 5 percent year over year, 6 percent for purchase mortgages.  Compared to the same time period last year, LendingTree has seen over a 12 percent decrease in total 5/1 ARM popularity, suggesting more borrowers are becoming risk-averse.

However, a recent analysis by LendingTree shows that even in a worst-case adjustment scenario, the typical 5/1 adjustable-rate mortgage using today's rate is a better option for the first 93 months. Said another way, a borrower is financially better-off with a 5/1 ARM if they plan to move or refinance within 7 years and 9 months after closing the loan.  According to the U.S. Census Bureau, Americans move or refinance every 6-7 years on average, making the current adjustable rate mortgage a viable option for the average homeowner.

In a worst-case scenario, typical 5/1 ARM rates would adjust to its maximum period cap of 2.00% annually, up to its incremental lifetime adjusted cap of 6.00%. Using this assumption, the incremental increases are shown below.

"Given the speed and the magnitude by which ARM rates have declined, adjustable-rate mortgages are proving to be a more valuable 'risk adjusted' alternative than a traditional fixed-rate mortgage,"  said Doug Lebda, LendingTree founder and CEO.  "What's surprising is the amount of savings these borrowers are missing out on.  The average household could save well over $130 per month and pay more towards the principal balance by choosing an adjustable rate loan, even when we factor in today's historically low fixed interest rates. Ultimately, deciding if an ARM or a fixed rate is more beneficial will depend on how long the borrower intends to stay in the house without refinancing."

The risk of rising interest rates is should be considered and evaluated as payments could potentially become unaffordable as the 5/1 ARM adjusts annually.  Although for homeowners who are confident they will be able to refinance before the rate adjusts or for those who are planning to move within 5 to 7 years, an adjustable rate mortgage has the possibility of saving thousands of dollars on mortgage payments. 

About LendingTree, LLC
LendingTree, LLC is the nation's leading online lender exchange and personal finance resource, helping consumers take charge of all their financial decisions, from mortgages to credit cards and more. LendingTree provides a marketplace that connects consumers with multiple lenders that compete for their business, as well as an array of online tools to aid consumers in their financial decisions. Since inception, LendingTree has facilitated more than 30 million loan requests and $214 billion in closed loan transactions. LendingTree provides access to lenders offering mortgages and refinance loans, home equity loans/lines of credit, and more. LendingTree, LLC is a subsidiary of Tree.com, Inc. (NASDAQ: TREE). For more information go to www.lendingtree.com, dial 800-555-TREE, join our Facebook page and/or follow us on Twitter @LendingTree.

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SOURCE LendingTree